Ringgit’s Weakness Amid US Inflation Speculation
The Malaysian ringgit concluded Wednesday’s trading session on a weaker note against the United States dollar, extending its recent losing streak. The local currency slid to 4.2335/2365 against the greenback, a notable decline from the previous day’s close of 4.2160/2210. This downward pressure is largely a response to anticipation surrounding the upcoming release of the US Personal Consumption Expenditures (PCE) inflation data, scheduled for this Friday. Analysts believe that an unexpectedly high inflation print could significantly reduce the likelihood of an interest rate cut by the US Federal Reserve in September. This possibility, according to Bank Muamalat Malaysia Bhd’s chief economist Dr. Mohd Afzanizam Abdul Rashid, is a key factor contributing to the dollar’s current strength. Market sentiment appears to be leaning towards pessimism, prompting traders to move into the perceived safety of the US dollar. This “flight to safety” is a classic market behavior that often occurs when investors are uncertain about future economic conditions and are seeking refuge in stable, globally recognized reserve currencies like the greenback.
A Broader Decline Against Global Currencies
While the ringgit’s performance against the US dollar has been a major focus, its movement against a basket of other major and regional currencies paints a broader picture of its current position. At the close of trading, the ringgit had settled mostly lower against several key currencies. It did manage to appreciate slightly against the euro, but it lost ground against the Japanese yen and weakened considerably against the British pound. The ringgit’s performance was also predominantly weaker against its regional counterparts. It depreciated against the Singapore dollar, declined versus the Thai baht, and slid against the Philippine peso. Notably, the local currency remained largely flat against the Indonesian rupiah, suggesting a degree of stability within that specific bilateral exchange rate. These movements collectively indicate that the factors weighing on the ringgit are not isolated to its relationship with the US dollar but are part of a wider trend of depreciation that reflects both domestic and international market forces.
Underlying Factors Fueling Market Pessimism
The ongoing strength of the US dollar is being driven by multiple underlying factors, including market concerns and specific economic policies. According to Dr. Mohd Afzanizam Abdul Rashid, elevated inflation could become a persistent issue in the United States, a concern that is being intensified by the recent doubling of tariffs on numerous imports from countries like India to as high as 50 percent. Such protectionist measures can often lead to higher costs for consumers, fueling inflationary pressures. This global dynamic is playing out against a backdrop of rising pessimism, which is further bolstering the US dollar’s position as a safe-haven asset. The US Dollar Index (DXY), a measure of the dollar’s value against a basket of currencies, has already risen by 0.38 percent to 98.603 points, despite some lingering concerns regarding the independence of the US Federal Reserve. This demonstrates that market sentiment, driven by fears of rising inflation and global economic uncertainty, is a powerful force that is currently outweighing other potential headwinds for the greenback.
